Germany, Europe's largest manufacturing power, has fallen into the swamp of industrial slump. As economic weakness drags into a fourth year after the pandemic, the United States' tariff policy and China's rapid industrial rise are combining to shake its traditional manufacturing competitiveness. On top of that, energy expenses have surged after the nuclear phaseout, accelerating a broad weakening of industrial competitiveness.
According to the Financial Times (FT) on the 12th local time, a representative case of Germany's manufacturing crisis is the industrial machine tool maker Trumpf, which posted a loss for the first time since the global financial crisis. Sales fell 16% in a year to 4.3 billion euros (6.36 trillion won), and Ditzingen in Baden-Württemberg, where its headquarters is located, declared austerity after local tax revenue shrank by 80%. Nicola Leibinger-Kammüller, Trumpf's chief executive officer (CEO), said, "German industry seems paralyzed."
The slump in German industry is analyzed as a structural problem, not a simple business cycle. An industrial structure that is hard to decarbonize, dependence on exports, and a car industry centered on internal combustion engines have all turned into weaknesses. On top of this, President Donald Trump's tariff policy and China's technological rise overlapped, causing exports to plunge. This year, Germany's exports to the United States fell 7.4% from a year earlier, and in capital goods trade with China, it posted a deficit for the first time since 2008.
Chinese capital goods are on average 30% cheaper than German ones, and the quality gap has narrowed significantly. According to the Mechanical Engineering Industry Association (VDMA) of Germany, China's machinery exports to Europe have doubled in six years and are expected to reach 50 billion euros this year. Not only the German auto industry but the broader machinery and metals industries have been hit, pushing the unemployment rate up to 6.3%.
Another structural factor cited is energy supply instability after the nuclear phaseout. In April 2023, Germany shut down its last three nuclear plants, effectively becoming a country without nuclear power. But in the same year, the Russia-Ukraine war sharply cut natural gas supplies, sending energy expenses soaring and manufacturing production costs exploding. Energy-intensive industries such as steel, chemicals, and autos were hit hard, and some corporations transferred production bases overseas.
At the time, the WSJ noted that "the nuclear phaseout decision accelerated the structural weakening of German industrial competitiveness," adding that "a development strategy centered on technology and exports collapsed under soaring energy prices." In fact, Germany's electricity rates are among the highest in Europe, and manufacturers increasingly are cutting output or transferring plants because they cannot bear power costs. Experts said, "A transition to renewable energy is necessary, but failing to fill the nuclear gap while becoming more energy-dependent has become a long-term risk."
As a solution to Germany's manufacturing slump, some argue that Germany should also consider a "Europe First" strategy, a European version of America First. Martin Herrenknecht, chairman of tunnel boring equipment maker Herrenknecht, said, "Europe should adopt a protectionist industrial policy." Proposals also emerged to expand support for corporations in Europe in response to China's subsidies competition and to restrict Chinese corporations' market entry by making it conditional on joint ventures.
Some expect defense demand to become a breakthrough that will revive the industrial institutional sector. As Germany and Western Europe invest hundreds of billions of euros to boosting national defense capabilities, the defense industry has entered a boom. Shares of defense company Rheinmetall have risen an average of 85% annually over five years, outpacing Nvidia's returns. However, some note that defense accounts for less than 2% of all German manufacturing jobs, making it insufficient to overturn the structural slump.
Meanwhile, the government of Chancellor Friedrich Merz decided to ease the liability limit and invest up to 1 trillion euros in infrastructure and defense over the next 10 years. Goldman Sachs predicted that Germany's growth rate will recover to 1.4% next year, but on the ground, criticism says the effect is limited because budgets are not flowing sufficiently to local governments.
The finance officer of Ditzingen, where Trumpf's headquarters is located, said, "The additional support is minimal compared with the investment plan, and major projects such as roads, a fire station, and bike paths have already been halted." The official warned that "the crisis in local finances is a nationwide phenomenon," and that the industrial slump in Germany is spreading across regional economies.